Binance transferred $400 million from US partner to company run by CEO Zhao
Business
Crypto currency’s unauthorized access to bank account of independent US partner, documents reveal
(Reuters) – The trade of crypto currencies globally Banking documents and corporate messaging reveal that Binance had unauthorized access to a bank account belonging to its ostensibly independent US partner and moved substantial quantities of money from the account to a trading company run by Changpeng Zhao, the CEO of Binance.
According to data for the quarter seen by Reuters, more than $400 million transferred from the Binance.US account at California's Silvergate Bank to this trading company, Merit Peak Ltd, during the first three months of 2021. Records show that BAM Trading, the business responsible for running the U.S. exchange, was used to establish the Binance.US account. The transfers to Merit Peak started, according to company messaging, in late 2020.
Neither the motivation for the transactions nor the ownership of any funds by Binance could be ascertained by Reuters. US clients. At the time, the exchange's public terms of service stated that Silvergate and the custodian company Prime Trust LLC in Nevada controlled the exchange's clients' dollar deposits. According to bank documents, Prime Trust wire sent $650 million into the Binance.US account throughout the quarter.
In response to queries from Reuters on transfers described in bank records, Kimberly Soward, a spokesman for Binance.US, remained silent. She said in a statement that Reuters' article utilised "outdated information" without going into greater detail. Merit Peak is neither trading on the Binance.US platform nor offering any type of service, she continued, and "only Binance.US workers have access" to the bank accounts of the U.S. firm. Soward didn't say exactly when Merit Peak stopped operating.
To specific inquiries concerning the transactions, the Binance global exchange, Binance CEO Zhao, and Prime Trust did not answer. A representative for Silvergate stated that the bank does not address specific clients.
According to mails seen by Reuters, Binance.management US's were worried about the outflows since the transactions were occurring without their knowledge. In late 2020, Catherine Coley, the CEO of Binance.US at the time, wrote to a financial officer of Binance seeking an explanation for the payments, calling them "unexpected" and asserting that "no one addressed them."
She questioned in one communication, "Where are those cash coming from.
After rival FTX's demise in November, the role of trading companies at cryptocurrency exchanges like market leader Binance has come under question. Trading companies sometimes take on a "market-making" function, buying and selling assets to increase the trading volume on an exchange and therefore make transactions easier. The spread—the gap between the prices buyers and sellers offer—is what the market maker capitalises on.
The creator of FTX, Sam Bankman-Fried, has been charged by the SEC with surreptitiously moving billions of dollars in client cash to his trading company, Alameda Research, which served as a market maker on the exchange. The SEC said in its December lawsuit against Bankman-Fried, who has pleaded not guilty, that Alameda enjoyed "undisclosed privileged treatment" on the FTX platform that masked the transactions.
Coley received a subpoena from the SEC requesting details on every market maker for Binance.US, their owners, and their trading behaviour. The subpoena was covered by The Wall Street Journal last year. Reuters was unable to determine Binance.response US's to the SEC.
The bank used by Binance and other cryptocurrency exchanges, Silvergate, is also coming under fire. The Justice Department's fraud division is looking into it and looking at how many accounts hosted by Silvergate were connected to Bankman-companies. Fried's The Justice Department and Silvergate both declined to comment.
Announcing Binance was Coley. In November 2020, US announced its membership in the Silvergate Exchange Network, saying, "We've established SEN for our business clients."
US announced abruptly in April 2021 that Coley will be replaced as CEO. Since departing, she has not made any public remarks.
